CEO salaries: Is 'say on pay' dead?

Rebound in stock market fueled pay gains for several local executives in 2012

The Dodd-Frank financial overhaul law of 2010 focused a spotlight on executive compensation in hopes of shrinking fat CEO paychecks.

But in the two years since Dodd-Frank took effect, there’s little to suggest that executive pay packages have gone on a diet.

While politicians and some labor activists have railed against super-sized pay packages for years, shareholders appear more interested in their own returns, especially as stock markets have rallied since the 2008 financial crisis. As long as a company’s stock price goes up, size doesn’t appear to matter in CEO pay.

“There is no evidence that shareholders are overly concerned with the levels of pay (with the exception of labor unions, who have their own motives), but rather care about tying pay more closely to performance,” said Kevin Murphy, a finance professor at the University of Southern California Marshall School of Business.

Average pay for CEOs of San Diego’s 100 or so publicly traded companies bounced up 5 percent to $2.3 million in 2012, including salary, bonus, perks, exercised stock options and vested restricted stock.

Most of that gain comes from stock awards to CEOs, not cash. The average cash salary and bonus for local CEOs rose a modest 2 percent to $845,459.

That’s still better than most workers. The average wage for payroll employees in San Diego County was essentially flat compared with last year at $51,371 as of the first quarter of this year, according to the state Employment Development Department.

The story is the same nationwide, where median CEO pay rose 3.6 percent to $10.1 million, according to a survey of 300 large U.S. companies done by The Wall Street Journal and the Hay Group.

Since the 1930s, pay for corporate chieftains has been a flash point in the income-inequality debate. According to the AFL-CIO, the CEO of a Standard & Poor’s 500 Index company made, on average, 354 times the average wage of a rank-and-file U.S. worker last year.

“When LeBron James or Tom Cruise get $25 million, people look at LeBron James and say ‘I can’t do that.’ They look at Tom Cruise and say, ‘I don’t look like that,’ ” said Wayne Guay, a professor at the University of Pennsylvania’s Wharton School of Business. “But when it’s a 62-year-old heavyset guy in a suit, they think ‘How hard can that be?’”

Executive-pay scholars generally fall into two camps.

One side believes CEO pay is driven by supply-and-demand market forces. Good executives can work at private equity firms or hedge funds, earning enormous amounts without the scrutiny that a public company CEO faces. So they are paid what the market will bear.

Others believe the entire executive-pay system is broken. CEOs are too cozy with their boards of directors, which shower them with lavish pay packages.

“These guys probably get paid more money than is necessary,” said Benjamin Hermalin, a finance professor at the UC Berkeley’s Haas School of Business. “I don’t think American business is that much better run because these guys are being paid these fortunes.”